A home loan modification is the process of changing the terms of a mortgage that were originally agreed upon between the lender and borrower or the mortgagee and mortgagor.
Usually, the mortgagor makes payments on the mortgage until the loan and the interest are fully paid. Until that time, the lender has a lien on the property; if the mortgagor sells the property prior to paying off the mortgage, then the unpaid balance is remitted to the lender, who then releases the lien.
When a mortgagor requests a loan modification from the lender, it is frequently because of an inability to stay current on payments as outlined in the mortgage. The modification involves a workout plan or restructuring of the loan by the lender. As a result of a loan modification, there may be changes to the following:
- Loan’s monthly payment
- Interest rate
- Outstanding principal
If you are a homeowner who is faced with financial hardship that could result in foreclosure, you may be eligible for a home loan modification. In order to determine if you are eligible for a home loan modification, lenders will perform an analysis of your financials and other documents, including the following:
- A hardship letter that discusses your financial difficulty
- Recent pay stubs
- A list of your assets and their valuation
- Credit card statements
- Loan statements
After gathering all of the required documentation, call your mortgage servicer and request a loan modification. It is unnecessary for you to prove that you are late in making payments on the loan; you only need to prove that you are likely to be in default on your loan if it is not modified.
Various lenders offer different home loan modification programs, and one that is popular is the Home Affordable Modification Program (HAMP), which was created by the federal government in 2009 to offer homeowners relief from financial distress. As of June 1, 2012, more homeowners can benefit from HAMP because the eligibility requirements are less strict than they were when the program was introduced. Homeowners who fall into the following categories may be eligible to participate in HAMP:
- Homeowners who are requesting a modification on a home that is not their principal residence; the home is rented or the homeowner plans to rent it.
- Homeowners who previously failed to qualify for HAMP because the ratio of their debts to their income was 31% or less.
- Homeowners who received a HAMP plan for a trial period, and then defaulted on their payments.
- Homeowners who received a HAMP permanent modification, and defaulted on their payments, thereby causing them to no longer be in good standing.
If you would like to obtain legal advice about applying for a home loan modification, you should consult a real estate lawyer.